Whether a Writ Petition Can Be Entertained Against a Notice Issued Under Section 74 of the CGST Act, 2017? A Critical Analysis of Kerala High Court's Ruling

 

Whether a Writ Petition Can Be Entertained Against a Notice Issued Under Section 74 of the CGST Act, 2017? A Critical Analysis of Kerala High Court's Ruling

Author: Abhishek Jat, Advocate

 

Introduction

The Kerala High Court, in a recent ruling dated 6th February 2025, in WA No. 238 of 2025, held that a writ petition challenging a show-cause notice issued under Section 74 of the Central Goods and Services Tax Act, 2017 (CGST Act) is not maintainable. The judgment significantly impacts taxpayers and businesses facing tax adjudication proceedings under the CGST regime. This article critically examines the legal reasoning behind the decision and its broader implications.

The Legal Context: Section 74 of the CGST Act, 2017

Section 74 of the CGST Act, 2017, empowers tax authorities to issue show-cause notices in cases of tax not paid or short-paid due to fraud, willful misstatement, or suppression of facts. The provision stipulates procedural safeguards and time limits to ensure fair adjudication.

Key provisions of Section 74 include:

• Sub-section (1): Authorizes the issuance of a show-cause notice.
• Sub-section (2): Mandates that such notices must be issued at least six months before the expiry of the time limit prescribed in sub-section (10).
• Sub-section (9): Grants the proper officer the authority to determine tax liability after considering the assessee’s representation.
• Sub-section (10): Sets a five-year time frame for concluding the adjudication.

The Facts of the Case

The respondent, an assessee engaged in the business of gold, silver, and diamond ornaments, challenged a show-cause notice issued under Section 74 of the CGST Act. The tax authorities had conducted a search and alleged suppression of outward supply, leading to a demand of Rs. 4,88,56,298 and an additional flood cess of Rs. 11,85,843.

The assessee filed a writ petition before the Kerala High Court, arguing that part of the alleged suppressed turnover belonged to a separate entity registered in the name of her deceased husband. The learned Single Judge directed the tax authorities to consider the preliminary objections raised by the assessee before proceeding with the adjudication. Aggrieved by this order, the State preferred an intra-court appeal.

The Kerala High Court's Rationale

The Division Bench of the Kerala High Court allowed the appeal, setting aside the Single Judge’s direction. The Court provided the following key reasons:

1. Lack of Provision for Adjudication in Stages:
• The CGST Act does not provide for adjudication in parts. Entertaining piecemeal adjudication would be detrimental to both the assessee and the revenue.
• Any delay in adjudication increases the interest burden on the assessee and disrupts the statutory timelines for completing the assessment.
2. Restriction on Writ Jurisdiction Against Show Cause Notices:
• The Court reiterated the well-established principle that a writ petition should not be entertained against a mere show-cause notice unless there is a patent lack of jurisdiction.
• The assessee had an adequate remedy within the statutory framework to contest the notice before the adjudicating authority.
3. Reference to Supreme Court Precedents:
• The Court cited D.P. Maheshwari v. Delhi Administration & Ors. [(1983) 4 SCC 293], emphasizing that preliminary objections should not be raised to delay substantive adjudication.
• The writ jurisdiction under Article 226 should not be misused to circumvent statutory proceedings.
4. Mandate for Expeditious Adjudication:
• The Court directed the assessee to appear before the proper officer on 10th February 2025.
• The adjudicating officer was instructed to conclude the hearing on the same day and issue a composite final order by 15th February 2025.

Implications of the Judgment

For Taxpayers

• Taxpayers cannot seek writ relief against show-cause notices under Section 74, except in rare cases of jurisdictional defects.
• It reinforces the need to respond to notices within the framework of CGST provisions rather than seeking judicial intervention at a preliminary stage.

For the Revenue Authorities

• The judgment upholds the integrity of the tax adjudication process and prevents unnecessary judicial interference.
• It ensures that adjudication proceedings are not fragmented, thereby safeguarding statutory timelines and revenue interests.

For Legal Practitioners

• The ruling serves as a guiding precedent in tax litigation, emphasizing the restricted scope of judicial review at the show-cause stage.
• Advocates must advise clients on the futility of premature writ petitions and focus on substantive defense within the adjudicatory mechanism.

Conclusion

The Kerala High Court's judgment in WA No. 238 of 2025 reaffirms the principle that writ jurisdiction under Article 226 cannot be invoked against a show-cause notice under Section 74 of the CGST Act unless there is a lack of jurisdictionp. This ruling fortifies the tax adjudication framework, ensuring that procedural safeguards are adhered to without unnecessary judicial intervention.

References:

1. WA No. 238 of 2025, Kerala High Court, decided on 06.02.2025.
2. D.P. Maheshwari v. Delhi Administration & Ors., (1983) 4 SCC 293.
3. Central Goods and Services Tax Act, 2017.